978-0134741086 Chapter 13 Part 2

Chapter 13, Page 212

account that automatically sweeps all funds in a company’s checking account

above a predetermined minimum into an interest-bearing account.

 Keep your business plan current in case an unexpected cash crisis forces an

entrepreneur to seek emergency financing.

Consider using You Be the Consultant: “Controlling Employee Theft” at this point.

Conclusion

Chapter 13, Page 213

Part 3: Chapter Exercises

Hands On… How To “Manage Cash Flow in a Highly

Seasonal Business”

1. What impact do highly seasonal sales have on a small company’s cash flow?

2. What other advice can you offer owners of seasonal businesses about coping

with the effects of their companies’ highly irregular sales patterns? About

managing cash flow in general?

1. Help Rowena put together a cash budget for the six months beginning in April.

(LO 4) (AACSB: Application of knowledge)

Chapter 13, Page 214

Cash Budget

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Sales

$

24,780

$

20,900

$

21,630

$

23,550

$

24,900

$

29,870

$

27,500

$

25,800

$

21,500

Credit Sales

$

15,611

$

13,167

$

13,627

$

14,837

$

15,687

$

18,818

$

17,325

$

16,254

$

13,545

Cash Receipts

Collections

1 – 30 days

$

9,050

$

9,569

$

11,479

$

10,568

$

9,915

$

8,262

31 – 60 days

$

3,679

$

4,006

$

4,235

$

5,081

$

4,678

$

4,389

61 – 90 days

$

1,053

$

1,090

$

1,187

$

1,255

$

1,505

$

1,386

Cash Sales

$

8,714

$

9,213

$

11,052

$

10,175

$

9,546

$

7,955

Other Receipts

$ –

Total Cash Receipts

$

22,496

$

23,878

$

27,953

$

27,079

$

25,644

$

21,992

Cash Disbursements

CGS

$

14,276

$

15,543

$

16,434

$

19,714

$

18,150

$

17,028

Wages & Salaries

$

3,550

$

4,125

$

5,450

$

6,255

$

6,060

$

3,525

Utilities

$

950

$

950

$

950

$

950

$

950

$

950

Rent

$

2,250

$

2,250

$

2,250

$

2,250

$

2,250

$

2,250

Truck Loan

$

427

$

427

$

427

$

427

$

427

$

427

Office Supplies

$

125

$

125

$

125

$

125

$

125

$

125

Maintenance

$

75

$

75

$

75

$

75

$

75

$

75

Uniforms/cleaning

$

80

$

80

$

80

$

80

$

80

$

80

Office cleaning service

$

85

$

85

$

85

$

85

$

85

$

85

Internet/computer service

$

225

$

225

$

225

$

225

$

225

$

225

Computer Supplies

$

75

$

75

$

75

$

75

$

75

$

75

Insurance Payment

$

1,200

$ –

$

1,200

Advertising

$

450

$

450

$

450

$

450

$

450

$

450

Tax Payments

$ –

$

3,140

$ –

Legal and Accounting fees

$

250

$

250

$

250

$

250

$

250

$

250

Miscellaneous Expenses

$

95

$

95

$

95

$

95

$

95

$

95

Other Expenses

$ –

Total Cash Disbursements

$

24,113

$

24,755

$

30,111

$

31,056

$

29,297

$

26,840

Chapter 13, Page 215

End of Month Balance

Beginning Cash Balance

$

10,685

$

9,069

$

8,192

$

6,034

$

2,057

$

1,500

+ Cash Receipts

$

22,496

$

23,878

$

27,953

$

27,079

$

25,644

$

21,992

-Cash Disbursements

$

(24,113)

$

(24,755)

$

(30,111)

$

(31,056)

$

(29,297)

$

(26,840)

EOM Cash Balance

$

9,069

$

8,192

$

6,034

$

2,057

$

(1,596)

$

(3,348)

Borrow

$ –

$

3,096

$

7,970

Repay

$ –

$

3,122

Final EOM Cash Balance

$

9,069

$

8,192

$

6,034

$

2,057

$

1,500

$

1,500

Monthly Surplus/(Deficit)

$

(1,616)

$

(877)

$

(2,158)

$

(3,977)

$

(3,653)

$

(4,848)

Chapter 13, Page 216

2. Does it appear that Rowena’s business will remain solvent, or could the company

be heading for a cash crisis? (LO 4) (AACSB: Analytical thinking)

3. What suggestions can you make to help Rowena improve her company’s cash

flow? (LO 4) (AACSB: Analytical thinking)

1. Identify the factors that led Holt of California to become a victim of employee

theft and embezzlement. What impact does this crime have on a company’s cash

flow? (LO 5) (AACSB: Application of knowledge)

2. Are small businesses more likely than large ones to be victims of employee theft?

Explain. (LO 5) (AACSB: Reflective thinking)

3. List at least five steps, in addition to the ones described here, that entrepreneurs

should take to prevent their businesses from becoming victims of employee theft and

embezzlement. (LO 5) (AACSB: Reflective thinking)

Chapter 13, Page 217

 Monitor inventory closely.

 Use technology to discourage theft.

 Set up a hotline.

opportunities.

13-1. Why must entrepreneurs concentrate on effective cash flow management?

(LO 1) (AACSB: Reflective thinking)

Chapter 13, Page 218

Cash is the most important, yet least productive, asset that a small business owns.

Businesses must have enough cash to meet their obligations or run the risk of declaring

bankruptcy. It is entirely possible for a business to earn a profit and still go out of business

by running out of cash.

13-2. Explain the difference between cash and profit. (LO 2) (AACSB: Reflective

thinking)

13-3. Outline the steps involved in developing a cash budget. (LO 3) (AACSB:

1. Determining an adequate minimum cash balance

13-4. How can an entrepreneur launching a new business forecast sales? (LO 3)

(AACSB: Reflective thinking)

The startup could do research on similar firms and their sales patterns in the first year of

13-5. What are the “big three” of cash management? (LO 4) (AACSB: Reflective

thinking)

Chapter 13, Page 219

13-6. What effect do the big three of cash management have on a company’s cash

flow? (LO 4) (AACSB: Reflective thinking)

Accounts Receivable: Extending credit to customers.

Cash flow is greatly affected due to the time lag between the sale and the actual collection

13-7. How can bartering improve a company’s cash position? (LO 5) (AACSB:

Reflective thinking)

Bartering is the exchange of goods and services for other goods and services rather than

13-8. What should be a small business owner’s primary concern when investing

surplus cash? (LO 5) (AACSB: Reflective thinking)

Part 5: Case Studies

The following text case may be used for lecture and assignments for topics presented in

this chapter.

 Case 5: Intertech Construction Corporation

 Case 7: Bluffton Pharmacy, Part 2

Part 6: Online Videos and Podcasts

Chapter 13, Page 220

These online videos may enhance class discussion and provide additional insight for the

chapter topics.

 Manage Your Cash Flow 5:53 minutes

http://www.youtube.com/watch?v=tIWDpxK5cUI

 How to Manage Cash Flow 9:37 minutes

http://www.youtube.com/watch?v=TdEMY5nxWCE

 Prepare a Cash Budget Using Excel 11:33 minutes

http://www.youtube.com/watch?v=uKZN5KxdgkU

 Poor Management of Accounts Receivable 1:42 minutes

http://www.youtube.com/watch?v=de8SiXOV6EA

 Modernizing Inventory Management 5:03 minutes

http://www.youtube.com/watch?v=1d0O8MAMyAM

 Small Business Bartering Tips 5:45 minutes

http://www.youtube.com/watch?v=WdmfIq6NEEA

 How to Properly Manage Cash Flow to Stop Employee Theft 2:49 minutes

http://www.youtube.com/watch?v=baL2rSQMe7k

 How to Raise Capital: The #1 Skill of an Entrepreneur 10:50 minutes

http://www.youtube.com/watch?v=yQLhWtgAT0A

Links to additional online resources are available on the companion Web site at